Weekly Issue: Waiting on Trump to make an official move on the tariffs


Key Points from This Alert:

  • We continue to have a Sell rating and a short position on Target (TGT) shares. We’re adjusting our protective buy stop order to $78 from $80
  • We continue to have a Buy rating on MoneyOnMobile (MOMT) shares.
  • We continue to have a Buy on GSV Capital (GSVC) Jun 2018 10.000 calls (GSVC180615C00010000)that closed last night at 0.35.
  • On the housekeeping front, the market’s gyration stopped out the Cummins CMI March 2018 170 calls (CMI180316C00170000).


As you’ve no doubt noticed, the stock market has shifted gears from being focused on Fed Chair Jerome Powell’s testimony before Congress and what it would mean for the Fed and interest rates last week, to this week and President Trump’s proposed tariffs on steel and aluminum. Earlier this week I shared my views on these tariffs, including why I think what we’ve seen is simply part of Trump’s negotiation tactics, but I also gamed out what it could all mean if Trump moves forward.  For our institutional clients, we put together a detailed report combining all of our commentary, which if you would like to take a look you can download that report by clicking here.

All in all, over the last week, we’ve had some twists (like Gary Cohn’s resignations) and turns (like Commerce Secretary Wilbur Ross coming out to calm market fears) that have reminded us what volatility feels like.  It’s kind of like returning to the open seas after cruising in the calm waters of a bay for so long — takes a little while to get used to, but eventually, investors will get their sea legs back.

With all the tariff talk, the underlying shares of engine manufacturer Cummins Inc. (CMI) came under pressure, and that led to our CMI March 2018 170 calls (CMI180316C00170000) getting stopped out even though February heavy truck orders were up gangbusters.

With the expectation that Trump could authorize his proposed tariffs as soon as late this week – key word being “could” —  the reality is we very well could see the market move quickly higher or sharply lower in response depending on the outcome. How’s that for analysis?

I wish I could offer some clearer insight, but the reality, however, is that no one ones exactly what will happen and exactly how the market will respond. Frankly, it all comes down to what the market thinks it hears, rather than reality these days. Ahead of Trump making an official move on the tariffs, it’s simply prudent investing in my view to hold off in terms of adding a new position. No need to get whipsawed out of the gate.


Adjusting our buy stop level on Target shares

Earlier this week, Target (TGT) reported its fourth-quarter results.  Those results came in mixed, as the company missed EPS by $0.01 but served up solid revenue and same-store sales. As expected, however, the company reminded investors that it is increasing its minimum wage to $12 per hour this year (on its way to $15 by 2020) and tripling its remodeling budget as it updates more than 300 stores in the U.S.

I hear those expanse numbers from Target and think “wow, that is going to lead to a big time jump in costs” at a time when consumer debt levels and the lack of real wage growth have led charge-off rates at smaller banks to hit 7.2% in 4Q 2017, up from 4.5% in the year ago quarter. Tematica’s Chief Macro Strategist and I talked about this toward the end of this week’s podcast (around the 46-minute mark), which you can listen to here, but the down and dirty is the outlook for the consumer, especially those consumers that fall under our Cash-Strapped Consumer investment theme, remains rather dire.

Amid this backdrop that is only adding to retailer woes, I continue to favor on the Tematica Select List both Amazon (AMZN) and Costco Wholesale (COST), with the latter of the two having reported solid quarterly results last night, as Cash-Strapped Consumers look to stretch what disposable spending dollars they do have. For Options+ readers, I continue to see Target’s business and its shares as challenged. Therefore, we will continue to keep our short position on TGT shares intact but given the recent move lower in their price we will amend our protective buy top order placing it at $78, down from $80.

  • We continue to have a Sell rating and a short position on Target (TGT) shares. We’re adjusting our protective buy stop order to $78 from $80


Remaining Patient with MoneyOnMobile Shares

Amid all the trade and tariff talk this week, MoneyOnMobile CEO Harold Montgomery gave an upbeat presentation about the company’s prospects at the LD Micro Conference. Part of the presentation talked about the underbanked population in India and MoneyOnMobile’s ability to capitalize on that pain point. Another part of Montgomery’s presentation touched on the company’s new partnership with Maharashtra State Road Transport Corporation (MSRTC). That partnership allows MoneyOnMobile’s participating retailers to book bus tickets to the approximately 7 million passengers that ride the MSRTC buses in India per day. I see this as the company expanding how it monetizes its platform, and we’ve seen that strategy pave the way for revenue and earnings growth at other companies.

  • We continue to have a Buy rating on MoneyOnMobile (MOMT) shares.


Checking in on GSV Capital Calls as GSVC Shares Soar

Over the last few weeks, shares of GSV Capital (GSVC) have soared some 25% as IPO documents for both Spotify and Dropbox have been filed with the SEC. Also, too, the GSV’s largest investment in big data company Palantir hinted that it too was preparing itself for a monetization event. Historically, when holdings in GSV’s portfolio go public, it drives the company’s overall net asset value higher especially when those names are set to have high-profile IPOs such as Spotify and Dropbox.

That’s the good news.

The not so good news is our GSVC Jun 2018 10.000 calls (GSVC180615C00010000) have been little changed, even though the underlying shares have soared. I attribute the bulk of that to the June strike date, which is several months away. Let’s remember that I chose that June date in order to capture the IPOs for both Spotify and Dropbox. My advice is let’s be patient with this call option.




About the Author

Chris Versace, Chief Investment Officer
I'm the Chief Investment Officer of Tematica Research and editor of Tematica Investing newsletter. All of that capitalizes on my near 20 years in the investment industry, nearly all of it breaking down industries and recommending stocks. In that time, I've been ranked an All Star Analyst by Zacks Investment Research and my efforts in analyzing industries, companies and equities have been recognized by both Institutional Investor and Thomson Reuters’ StarMine Monitor. In my travels, I've covered cyclicals, tech and more, which gives me a different vantage point, one that uses not only an ecosystem or food chain perspective, but one that also examines demographics, economics, psychographics and more when formulating my investment views. The question I most often get is "Are you related to…."

Comments are closed.